March 01, 2005|By Andrea K. Walker, Lorraine Mirabella and Jamie Smith Hopkins | Andrea K. Walker, Lorraine Mirabella and Jamie Smith Hopkins,SUN STAFF
From scenes of Macy's in the Christmas movie Miracle on 34th Street to baby boomer recollections of the retail palaces with elevator operators and tearooms that once anchored Main Street, department stores tap a vein of nostalgia among shoppers.
But yesterday's announcement that Federated Department Stores, which owns Macy's and Bloomingdale's, is buying May Department Stores, which owns Hecht's and Lord & Taylor, signals a turning point for the department store trade and the era of mall shopping it helped shape.
The deal creates an uncertain future for hundreds of the nation's department stores, including Hecht's, the regional chain that grew from the Baltimore furniture store Samuel Hecht began in 1857.
While some analysts believe Hecht's is different enough from Federated's other chains to continue, many believe its 148-year-old Hecht's nameplate will be merged with, and eventually yield to, Macy's.
The consolidation could have major repercussions for the nearly 1,650 people in the Baltimore area who work for Hecht's stores and two distribution centers, as well as for newspapers and broadcasters that rely on retail advertising. The merger also amplifies questions about the future of traditional malls, whose successes have hinged on the performance of large department stores.
"We have had a vanilla-box period of retailing," said Denise Kramp, senior client partner with a specialization in global retail executive search assignments for Korn/Ferry International in Philadelphia. "We've been `overstored.'"
End, or just change?
The $11 billion Federated-May deal, like the $11.5 billion retail merger pending between Sears, Roebuck & Co. and Kmart Holding Corp., were greeted with eulogies for the traditional department store and the enclosed mall.
But some retail experts see the moves as healthier signs of evolution. Like airlines and telecommunications, retail has been transformed in the past generation by discount players, specialty chains and the Internet.
Mid-priced department stores have been beaten on different flanks by discounters such as Wal-Mart Stores Inc. and Target Corp. and high-end merchants with edgier fashions such as Nordstrom Inc. and Saks Fifth Avenue Inc.
Specialty stores such as Limited Inc., Abercrombie & Fitch and Bed, Bath & Beyond offer merchandise similar to the larger department stores, but are considered more hip or exciting.
"The department store is not going to go away," said George Whalin, president of Retail Management Consultants in San Marcos, Calif. "They're going to evolve like other parts of the retail industry."
Federated didn't specify how many jobs would be cut because of the merger or what it would do in cases where it and May had stores in the same malls. The company said it is waiting to hear whether anti-trust regulators will require it to close overlapping stores.
"The issue is, is this going to allow them to compete more vigorously, or is this going to cause an undue concentration of market power in a few hands that would allow prices to be unnecessarily high?" said Barry F. Rosen, the chairman and chief executive of the Baltimore law firm Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC. "My intuition is that the argument that it's pro-competition is actually stronger than that it's anti-competition."
The company said that it plans to put the Macy's name on most of its regional stores, as it has with Rich's, Burdine's and Lazarus, three regional chains that it owns.
Some analysts predict that the company will eventually go a step further and the regional chains, including Hecht's, will disappear altogether as Federated focuses on creating a national presence under the Macy's name. Other stores, they say, would be shut down to prevent duplication in certain markets.
Most of Hecht's 61 stores are in Maryland and Virginia. The company also runs the Strawbridge chain, with 20 stores in Pennsylvania, New Jersey and Delaware.
"We can't afford to lose any more home names," said Baltimore stockbroker Julius Westheimer, who from 1952 to 1960 ran a downtown department store called Julius Gutman & Co. He lamented the possible end of what long-term residents still call the "Hecht Company."
"Baltimore has lost a number of home industries, and this would be a loss of a Baltimore-based name, a good name," Westheimer said. "I hate the thought it could disappear."
Mark Millman, president of Millman Search Group, a national retail consulting firm, said that Macy's, operated as a national brand, is viewed as being a notch above Hecht's in its quality and service, but that sentiment is not unanimous.
"I don't think Macy's has shown signs of being a four-star department store where it is," said Candace Corlett, a principal with WSL Strategic Retail. "Unfortunately, department stores have become synonymous with mediocre retailing. Bigger isn't necessarily going to make them better."
